00:00The bond market is front and center. We're seeing yields at the highest levels in decades, yet we see the
00:06stock market keeps rallying.
00:08In fact, it's again in the money today. Should we be nervous or not?
00:12I think it's always reasonable in the investment world to be nervous a little bit because you mentioned the opening.
00:18There's a lot of geopolitical risk. You have a bunch of wars going on, which I hope are properly resolved.
00:23You have bond rates going up. Inflation is a little bit higher than people thought.
00:26But so, yeah, but I'm not surprised. I think when people say you should be surprised, bond rates can go
00:32up.
00:33The notion that somehow people said they'll never go up is the wrong notion.
00:37And so companies like us prepare for higher rates, lower rates and figure those things can happen.
00:42The thing is, they're at the highest level in decades. I mean, that is where the surprise could be.
00:48I mean, they could be much higher than they are today. Oh, yeah. How much higher?
00:51You say decades, but we've had like one of the greatest bull market.
00:53Other than brief COVID, you know, since the great financial crisis, we've had a huge bull market, huge lower rates
01:00for the most part for a long period of time.
01:02But the world changes, you know, like we may have gone from a savings glut to a to not enough
01:08savings.
01:09You know, and, you know, the AI investments, you're talking about in America alone, 450 billion last year, 750 this
01:15year, a trillion next year.
01:17Global deficits at all time highs. And they are huge. So the government, including ours, has to borrow huge sums
01:24of money more next year than this year.
01:26So, you know, people who own bonds, they tend to look at these things and both inflation and, you know,
01:31demands for capital can push up rates.
01:33The thing is, it's not just an inflation story right now. It's also, I guess, a credibility story, right?
01:40I mean, we have an environment where everybody's trying to pay debt and governments around the world have so much
01:48debt at a higher level.
01:49I mean, at some point, it's going to hit. Yeah, it is going to hit. Like, U.S. government debt
01:56is 30 trillion. The average rate is three and a half percent.
01:59You know, so even today, they can't possibly refinance it at lower than that rate. They have another $2 trillion
02:06to do this year.
02:07So, yeah, but the thing is, we don't know when. We don't know when the world gets too scared about
02:12that, when inflation makes it where people don't want to own long-term duration securities,
02:17or where it's just a demand for capital. There have been examples in history where there's so much demand for
02:22capital, rates are going up, but it's for a good reason.
02:25People are making productive investments in the world. Government spending is often not that. Government spending is much more consumption
02:33-related, which doesn't, you know, help future productivity.
02:35So, and all that spending, too, drives corporate profits. So, people shouldn't be that surprised that corporate profits are doing
02:41quite well, too, which helps, obviously, the stock market.
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